Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MET > SEC Filings for MET > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for METLIFE INC

Form 10-Q for METLIFE INC


8-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Index to Management's Discussion and Analysis of Financial Condition and Results of Operations

Page Forward-Looking Statements and Other Financial Information 99 Executive Summary 99 Industry Trends 102 Summary of Critical Accounting Estimates 110 Economic Capital 111 Acquisitions and Disposition s 111 Results of Operations 112 Investments 137 Derivatives 152 Off-Balance Sheet Arrangements 155 Policyholder Liabilities 156 Liquidity and Capital Resources 163 Adoption of New Accounting Pronouncements 175 Future Adoption of New Accounting Pronouncements 175 Non-GAAP and Other Financial Disclosures 175 Subsequent Event 176


Table of Contents

Forward-Looking Statements and Other Financial Information For purposes of this discussion, "MetLife," the "Company," "we," "our" and "us" refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. Following this summary is a discussion addressing the consolidated results of operations and financial condition of the Company for the periods indicated. This discussion should be read in conjunction with MetLife, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013 (the "2013 Annual Report"), the cautionary language regarding forward-looking statements included below, the "Risk Factors" set forth in Part II, Item 1A, and the additional risk factors referred to therein, "Quantitative and Qualitative Disclosures About Market Risk" and the Company's interim condensed consolidated financial statements included elsewhere herein.
This Management's Discussion and Analysis of Financial Condition and Results of Operations may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results. Any or all forward-looking statements may turn out to be wrong. Actual results could differ materially from those expressed or implied in the forward-looking statements. See "Note Regarding Forward-Looking Statements." This Management's Discussion and Analysis of Financial Condition and Results of Operations includes references to our performance measures, operating earnings and operating earnings available to common shareholders, that are not based on accounting principles generally accepted in the United States of America ("GAAP"). Operating earnings is the measure of segment profit or loss we use to evaluate segment performance and allocate resources. Consistent with GAAP guidance for segment reporting, operating earnings is our measure of segment performance. Operating earnings is also a measure by which senior management's and many other employees' performance is evaluated for the purposes of determining their compensation under applicable compensation plans. See "- Non-GAAP and Other Financial Disclosures" for definitions of these and other measures.
Executive Summary
MetLife is a global provider of life insurance, annuities, employee benefits and asset management. MetLife is organized into six segments, reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the "Americas"); Asia; and Europe, the Middle East and Africa ("EMEA"). In addition, the Company reports certain of its results of operations in Corporate & Other, which includes MetLife Home Loans LLC ("MLHL"), the surviving, non-bank entity of the merger of MetLife Bank, National Association ("MetLife Bank") with and into MLHL. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2013 Annual Report for information regarding the Company's exit from the MetLife Bank businesses and other business activities. Management continues to evaluate the Company's segment performance and allocated resources and may adjust related measurements in the future to better reflect segment profitability. See Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on the Company's segments and Corporate & Other.

Certain international subsidiaries have a fiscal year cutoff of November 30. Accordingly, the Company's interim condensed consolidated financial statements reflect the assets and liabilities of such subsidiaries as of May 31, 2014 and November 30, 2013 and the operating results of such subsidiaries for the three months and six months ended May 31, 2014 and 2013. The Company is in the process of converting to calendar year reporting for these subsidiaries. We expect to substantially complete these conversions by 2016. Amounts relating to the conversions to date have been de minimis and, therefore, have been reported in net income in the quarter of conversion.
In the first quarter of 2014, the Company entered into a definitive agreement to sell its wholly-owned subsidiary, MetLife Assurance Limited ("MAL") and, as a result, began reporting the operations of MAL as divested business. The sale of MAL was completed in May 2014. See Note 3 of the Notes to the Interim Condensed Consolidated Financial Statements. Consequently, the results for Corporate Benefit Funding decreased by $4 million, net of $2 million of income tax, and $9 million, net of $5 million of income tax, for the three months and six months ended June 30, 2013, respectively. Also, the results for Corporate & Other decreased by $4 million, net of $2 million of income tax, and $7 million, net of $4 million of income tax, for the three months and six months ended June 30, 2013, respectively.


Table of Contents

In October 2013, MetLife, Inc. completed its previously announced acquisition of Administradora de Fondos de Pensiones Provida S.A. ("ProVida"), the largest private pension fund administrator in Chile based on assets under management and number of pension fund contributors. The acquisition of ProVida supports the Company's growth strategy in emerging markets and further strengthens the Company's overall position in Chile. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2013 Annual Report for further information on the acquisition of ProVida.
In 2013, MetLife, Inc. announced its plans to merge three U.S.-based life insurance companies and an offshore reinsurance subsidiary to create one larger U.S.-based and U.S.-regulated life insurance company (the "Mergers"). The Mergers are expected to occur in the fourth quarter of 2014, subject to regulatory approvals. The companies to be merged are MetLife Insurance Company of Connecticut ("MICC"), MetLife Investors USA Insurance Company and MetLife Investors Insurance Company, each a U.S. insurance company that issues variable annuity products in addition to other products, and Exeter Reassurance Company, Ltd. ("Exeter"), a reinsurance company that mainly reinsures guarantees associated with variable annuity products. MICC, which is expected to be renamed and domiciled in Delaware, will be the surviving entity. Exeter, formerly a Cayman Islands company, was re-domesticated to Delaware in October 2013. Effective January 1, 2014, following receipt of New York State Department of Financial Services (the "Department of Financial Services") approval, MICC withdrew its license to issue insurance policies and annuity contracts in New York. Also effective January 1, 2014, MICC reinsured with an affiliate all existing New York insurance policies and annuity contracts that include a separate account feature. On December 31, 2013, MICC deposited investments with an estimated fair market value of $6.3 billion into a custodial account to secure MICC's remaining New York policyholder liabilities not covered by such reinsurance, which became restricted on January 1, 2014.
The Mergers (i) may mitigate to some degree the impact of any restrictions on the use of captive reinsurers that could be adopted by the Department of Financial Services or other state insurance regulators by reducing our exposure to and use of captive reinsurers; (ii) will alleviate the need to use MetLife, Inc. cash to fund derivative collateral requirements; (iii) will increase transparency relative to our capital allocation and variable annuity risk management; and (iv) may impact the aggregate amount of dividends permitted to be paid without insurance regulatory approval. See "- Industry Trends - Regulatory Developments - U.S. Regulatory Developments - Insurance Regulatory Examinations," "- Liquidity and Capital Resources - MetLife, Inc. - Liquidity and Capital Sources - Dividends from Subsidiaries," "- Liquidity and Capital Resources - MetLife, Inc. - Liquidity and Capital Uses - Affiliated Capital Transactions" and Note 6 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on the impact of the Mergers, and see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - The Company - Capital - Affiliated Captive Reinsurance Transactions" included in the 2013 Annual Report for information on our use of captive reinsurers. See also "Risk Factors - Acquisition-Related Risks - We Could Face Difficulties, Unforeseen Liabilities, Asset Impairments or Rating Actions Arising from Business Acquisitions or Integrating and Managing Growth of Such Businesses, Dispositions of Businesses, or Legal Entity Reorganizations" included in the 2013 Annual Report for information regarding the potential impact on our operations if the Mergers or related regulatory approvals are prevented or delayed.
Sales experience was mixed across our businesses for the three months ended June 30, 2014 as compared to the same period of 2013. As a result of our continued focus on pricing discipline and risk management, sales of our variable annuity and Japan life products declined. Unfavorable mortality and morbidity experience adversely impacted our results. An increase in the average value of our separate accounts from continued strong equity market performance produced higher asset-based fee revenue. Positive net flows in combination with sales growth in our international segments increased our investment portfolio, resulting in higher investment income. The sustained low interest rate environment reduced investment yields, but also reduced interest crediting rates. In addition, changes in long-term interest rates resulted in derivative gains for the current period compared with losses in the prior period. Finally, the current period includes a loss on the disposition of MAL.


Table of Contents

                                                   Three Months               Six Months
                                                       Ended                     Ended
                                                      June 30,                  June 30,
                                                 2014         2013         2014         2013
                                                                (In millions)
Income (loss) from continuing operations, net
of income tax                                 $  1,376     $    508     $  2,718     $  1,503
Less: Net investment gains (losses)               (125 )        110         (536 )        424
Less: Net derivative gains (losses)                311       (1,690 )        654       (2,320 )
Less: Other adjustments to continuing
operations (1)                                    (475 )        (94 )       (777 )       (829 )
Less: Provision for income tax (expense)
benefit                                             44          566          164          955
Operating earnings                               1,621        1,616        3,213        3,273
Less: Preferred stock dividends                     31           31           61           61
Operating earnings available to common
shareholders                                  $  1,590     $  1,585     $  3,152     $  3,212


__________________


(1) See definitions of operating revenues and operating expenses under "- Non-GAAP and Other Financial Disclosures" for the components of such adjustments.

Three Months Ended June 30, 2014 Compared with the Three Months Ended June 30, 2013
During the three months ended June 30, 2014, income (loss) from continuing operations, net of income tax, increased $868 million over the prior period. The change was predominantly due to a favorable change in net derivative gains (losses) of $2.0 billion ($1.3 billion, net of income tax) driven by changes in interest rates. This was offset by an unfavorable change in net investment gains (losses) of $235 million ($153 million, net of income tax) primarily driven by a loss on the disposition of MAL. In addition, an unfavorable change in other adjustments to continuing operations of $381 million ($248 million, net of income tax) was primarily associated with asymmetrical GAAP accounting treatment for insurance contracts.
A slight increase in operating earnings available to common shareholders is the result of higher asset-based fee revenues from improved equity market performance, higher net investment income from portfolio growth and a decrease in interest credited expense, which was more than offset by unfavorable mortality and morbidity experience and a decrease in investment yields. In addition, our results for the current period include a $56 million, net of income tax, favorable reserve adjustment related to disability premium waivers in our retail life business. The fourth quarter 2013 acquisition of ProVida in Chile increased operating earnings available to common shareholders by $57 million, net of income tax. Effective January 1, 2014, the Patient Protection and Affordable Care Act ("PPACA") mandated that an annual fee be imposed on health insurers. This fee, which was not deductible for income tax purposes, reduced operating earnings by $15 million in the current period. Six Months Ended June 30, 2014 Compared with the Six Months Ended June 30, 2013 During the six months ended June 30, 2014, income (loss) from continuing operations, net of income tax, increased $1.2 billion over the prior period. The change was predominantly due to a favorable change in net derivative gains (losses) of $3.0 billion ($1.9 billion, net of income tax) driven by changes in interest rates and foreign currency exchange rates. This was offset by an unfavorable change in net investment gains (losses) of $960 million ($624 million, net of income tax) primarily driven by a loss on the disposition of MAL.
Operating earnings available to common shareholders decreased $60 million from the prior period. This decrease reflects unfavorable mortality and morbidity experience and a decrease in investment yields, along with higher asset-based fee revenues from improved equity market performance, higher net investment income from portfolio growth and a decrease in interest credited expense. Our results for the current period include charges totaling $57 million for a settlement with the Department of Financial Services and the District Attorney, New York County in relation to their respective inquiries into whether American Life Insurance Company ("American Life") and Delaware American Life Insurance Company ("DelAm") conducted business in New York without a license and whether representatives acting on behalf of the companies solicited, sold or negotiated insurance products in New York without a license. Our results for the current period also include a $56 million, net of income tax, favorable reserve adjustment related to disability premium waivers in our retail life business. The fourth quarter 2013 acquisition of ProVida in Chile increased operating earnings available to common shareholders by $111 million, net of income tax. The PPACA fee, which was not deductible for income tax purposes, reduced operating earnings by $29 million in the current period.


Table of Contents

Consolidated Company Outlook
As part of an enterprise-wide strategic initiative, by 2016, we expect to increase our operating return on common equity, excluding accumulated other comprehensive income ("AOCI"), to the 12% to 14% range, driven by higher operating earnings. This target assumes that regulatory capital rules appropriately reflect the life insurance business model and that we have clarity on the rules in a reasonable time frame, allowing for meaningful share repurchases prior to 2016. If we are unable to repurchase a sufficient amount of shares, we expect the range of our operating return on common equity, excluding AOCI, to be 11% to 13%. Also, as part of this initiative, we will leverage our scale to improve the value we provide to customers and shareholders in order to achieve $1 billion in efficiencies, $600 million of which is expected to be related to net pre-tax expense savings, and $400 million of which we expect to be primarily reinvested in our technology, platforms and functionality to improve our current operations and develop new capabilities. We also continue to shift our product mix toward protection products and away from more capital-intensive products, in order to generate more predictable operating earnings and cash flows, and improve our risk profile and free cash flow. Finally, we plan to grow our investment management business which provides asset management products and services to our customers.
We expect to achieve the 2016 target range on our operating return on common equity by primarily focusing on the following:
Growth in premiums, fees and other revenues driven by:

- Accelerated growth in Group, Voluntary & Worksite Benefits;

- Increased fee revenue reflecting the benefit of higher equity markets on our separate account balances; and

- Increases in our businesses outside of the U.S., notably accident & health, from continuing organic growth throughout our various geographic regions and leveraging of our multichannel distribution network.

Expanding our presence in emerging markets, including potential merger and acquisition activity. We expect that by 2016, 20% or more of our operating earnings will come from emerging markets, with the acquisition of ProVida contributing to this increase.

Focus on disciplined underwriting. We see no significant changes to the underlying trends that drive underwriting results; however, unanticipated catastrophes could result in a high volume of claims.

Focus on expense management in the light of the low interest rate environment, and continued focus on expense control throughout the Company.

Continued disciplined approach to investing and asset/liability management ("ALM"), through our enterprise risk and ALM governance process.

Industry Trends
The following information on industry trends should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations - Industry Trends" in Part II, Item 7, of the 2013 Annual Report and in Part I, Item 2, of MetLife, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
We continue to be impacted by the unstable global financial and economic environment that has been affecting the industry.


Table of Contents

Financial and Economic Environment
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility and disruptions in global capital markets, particular markets, or financial asset classes can have an adverse effect on us, in part because we have a large investment portfolio and our insurance liabilities are sensitive to changing market factors. Global market factors, including interest rates, credit spreads, equity prices, real estate markets, foreign currency exchange rates, consumer spending, business investment, government spending, the volatility and strength of the capital markets, deflation and inflation, all affect the business and economic environment and, ultimately, the amount and profitability of our business. Disruptions in one market or asset class can also spread to other markets or asset classes. Upheavals in the financial markets can also affect our business through their effects on general levels of economic activity, employment and customer behavior. While our diversified business mix and geographically diverse business operations partially mitigate these risks, correlation across regions, countries and global market factors may reduce the benefits of diversification. Financial markets have also been affected by concerns over U.S. fiscal and monetary policy, although recent signs of Congressional compromise, reflected in the passage of a two-year budget agreement in December 2013 and the approval on February 12, 2014 of a bill to raise the debt ceiling until March 2015, appear to have alleviated some of these concerns. However, unless long-term steps are taken to raise the debt ceiling and reduce the federal deficit, rating agencies have warned of the possibility of future downgrades of U.S. Treasury securities. These issues could, on their own, or combined with the possible slowing of the global economy generally, send the U.S. into a new recession, have severe repercussions to the U.S. and global credit and financial markets, further exacerbate concerns over sovereign debt of other countries and disrupt economic activity in the U.S. and elsewhere. Concerns about the economic conditions, capital markets and the solvency of certain European Union ("EU") member states, including Portugal, Ireland, Italy, Greece and Spain ("Europe's perimeter region"), and of financial institutions that have significant direct or indirect exposure to debt issued by these countries, have been a cause of elevated levels of market volatility. However, after several tumultuous years, economic conditions in Europe's perimeter region seem to be stabilizing or improving, as evidenced by the stabilization of credit ratings, particularly in Spain, Portugal and Ireland. This, combined with greater European Central Bank ("ECB") support and improving macroeconomic conditions at the country level, has reduced the risk of default on the sovereign debt of certain countries in Europe's perimeter region and the risk of possible withdrawal of one or more countries from the Euro zone. See "- Investments - Current Environment" for information regarding credit ratings downgrades, support programs for Europe's perimeter region and our exposure to obligations of European governments and private obligors.
The financial markets have also been affected by concerns that other EU member states could experience similar financial troubles, that some countries could default on their obligations, have to restructure their outstanding debt, or that financial institutions with significant holdings of sovereign or private debt issued by borrowers in Europe's perimeter region could experience financial stress, any of which could have significant adverse effects on the European and global economies and on financial markets, generally. In September 2012, the ECB announced a new bond buying program, Outright Monetary Transactions ("OMT"), intended to stabilize the European financial crisis. This program involves the potential purchase by the ECB of unlimited quantities of sovereign bonds with maturities of one to three years. The OMT has not been activated to date, but the possibility of its use by the ECB has succeeded in reducing investor concerns over the possible withdrawal of one or more countries from the Euro zone and has helped to lower sovereign yields in Europe's perimeter region. The Euro zone has emerged from its recession, but economic growth is expected to remain relatively muted, with concerns over low inflation becoming more pronounced as countries in Europe's perimeter region in particular continue to pursue policies to reduce their relative cost of production and reduce macroeconomic imbalances. More recently, concerns about the political and economic stability of countries in regions outside the EU, including Ukraine, Russia and Argentina, have contributed to global market volatility. See "Risk Factors - Economic Environment and Capital Markets-Related Risks - We Are Exposed to Significant Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our Net Investment Income to Vary from Period to Period," and "Risk Factors - Economic Environment and Capital Markets-Related Risks - If Difficult Conditions in the Global Capital Markets and the Economy Generally Persist, They May Materially Adversely Affect Our Business and Results of Operations" included in the 2013 Annual Report. See also "- Investments - Current Environment - Selected Country Investments" for information regarding our investments in Ukraine, Russia, and Argentina.


Table of Contents

We face substantial exposure to the Japanese economy given our operations there. Despite a broad recovery in Gross Domestic Product ("GDP") growth and rising inflation over the last year, structural weaknesses and debt sustainability have yet to be addressed effectively, which leaves the economy vulnerable to further disruption. Going forward, Japan's structural and demographic challenges may continue to limit its potential growth unless reforms that boost productivity are put into place. Japan's high public sector debt levels are mitigated by low refinancing risks and its nominal yields on government debt have remained at a lower level than that of any other developed country. However, frequent changes in government have prevented policy makers from implementing fiscal reform measures to put public finances on a sustainable path. In January 2013, the government and the Bank of Japan pledged to strengthen policy coordination to end deflation and to achieve sustainable economic growth. This was followed by the announcement of a supplementary budget stimulus program totaling 2% of GDP and the adoption of a 2% inflation target by the Bank of Japan. In early April 2013, the Bank of Japan announced a new round of monetary easing measures including increased government bond purchases at longer maturities. In . . .

  Add MET to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MET - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.